The Senate late Wednesday passed a bill that gives the Federal Housing Administration the ability to adjust its insurance premium structure. This was sold as a way to help rebuild FHA’s depleted capital reserves and could make a huge difference in mortgage payment for FHA buyers in Eugene/Springfield.

The bill has already passed the house. The bill (H.R. 5981) allows FHA to raise its annual premium to 1.55% from 0.55%. Approved by unanimous consent, the legislation now goes to the White House for the president’s signature.

I haven’t decided that this is a good thing to happen to mortgage lending or a bad thing. One of the determining factors for me will be how much of the authorized increase FHA determines they will actually take. If they take the full 1.55%, it will literally take about 25% of the buyers out of the market.

According to the National Mortgage News, “With this new authority, FHA will lower its 2.25% upfront premium to 1%, but then raise the current 55 basis point annual premium, basing the hikes on loan-to-value ratios. FHA wants to raise the annual premium to 85 bps for loans with LTVs of up to, and including 95%, and to 90 bps for loans with LTVs above 95%.”

So, let’s take a look at the numbers using the following parameters, $175,000 purchase, 30 year fixed rate, 3.5% down payment, 4.5% interest rate. Currently, the principal, interest and mortgage insurance payment would be $951.74 a month (APR 5.319) but under the new rules (if they used the numbers above), the payment would be $989.95 (APR 5.443), almost $40 more per month. Also, if they went as high as they could go (no reduction in UFMIP and the full 1.55% MI factor), the payment would be $1,091.44 (APR 5.993), a whopping increase of $140 per month over current program guidelines. Please note, the increase in the APR is due to the increase in mortgage insurance, not a change in rate.

I am not saying that FHA will increase to the limit, but I am concerned that they can. I have not seen many instances in the past where a government agency took less than the maximum allowed. That concerns me.

Mortgage rates are low. Mortgage insurance on FHA loans will be going up in September according to FHA head, David Stevens. You can read his announcement here. What it all means is that if you are thinking about buying a home and using FHA as your vehicle of choice, now really is the time to get it done.

Contact me

Navigating the mortgage approval process can be daunting. You need someone on your side. I am available right now to help you with the loan process and know the ins and outs of FHA, VA, USDA and conventional financing. If you want to buy a home using an FHA loan or refinance using VA, I am here to help. Contact me at Alpine Mortgage Planning, 1200 Executive Pkwy., Ste. 100, Eugene OR 97401, 541-342-7576/541-221-3455 cell or by e-mail. Only you can make the choice it is time to get the process started.

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